Explore BrainMass

Explore BrainMass

    CVP formula to compute break-even

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The following are the monthly fixed expenses for Peyton Travel:

    Office rent: $3,000.00
    Depreciation of office furniture 200.00
    Utilities 110.00
    Telephone 520.00
    Reservation Service Fees 380.00
    Travel Agent Salaries 1,400.00
    Variable expenses include the following:
    Travel Agent Commission 5.0% of sales
    Advertising 6.0% of sales
    Supplies and Postage 1.0% of sales
    Telephone and Reservation Service usage fees 3.0% of sales

    Use the contribution margin ratio CVP formula to compute Peyton Travel's break-even sales in dollars. If the average sales price of a ticket is $660.00; how many tickets must be sold to reach break-even?

    Use the income statement equation [revenue - (variable expense + fixed expense) = operating income] to compute the dollar sales needed to earn a target monthly operating income of $6,290.00. How many tickets is this if the average sales price of a ticket is $660.00?

    Assume the average sales price decreases to $440.00 per ticket. Use the contribution margin approach to compute Peyton Travel's new break-even point in tickets sold. How does this compare to your answer in part a)?

    © BrainMass Inc. brainmass.com October 1, 2020, 9:46 pm ad1c9bdddf
    https://brainmass.com/business/cost-volume-profit-analysis/cvp-formula-to-compute-break-even-193972

    Solution Preview

    Please see the attached Excel spreadsheet.

    Fixed Costs
    Rent 3,000
    Depreciation 200
    Utilities 110
    Phone 520
    Service Fees 380
    Salaries 1,400
    Total Fixed Costs 5,610

    Variable Costs @ $660 @440
    Commission 5% 33 22
    Advertising 6% 39.60 26.4
    Supplies 1% 6.60 4.4
    Service Fees 3% 19.80 13.2
    Total Variable Costs 99.00 66.00

    Average ...

    $2.19

    ADVERTISEMENT